Time Essay: The U.S. Should Soak Up That Shower of Gold

The US. Should Soak Up That Shower of Gold

Americans were more intrigued than alarmed two years ago when Saudi Arabia’s Minister of Petroleum and Mineral Resources, Ahmed Zaki Yamani, suggested a historic reversal of national roles. Yamani proposed that Saudi Arabia be permitted to spend its increasing oil revenues by buying into refining and marketing facilities in the U.S., which has always prided itself on exporting capital, technology and management. His idea provoked a dour response from Washington, but it was at least followed by a rash of American humor. Cartoons showed robed Arabs manning Stateside gas pumps and a camel replacing the tiger in the tank.

Since the energy crisis and a gargantuan fourfold increase in petroleum prices, however, such chuckles have died away. Instead, there is anger that prices artificially set by the 13 members of the Organization of the Petroleum Exporting Countries give those nations massive revenues to invest in the West. The new and powerful image of the oil oligarchs has prompted many menacing scenarios, including New York magazine’s recent fantasy about a successful military conquest by the Shah of Iran.

The West’s resentment is understandable, but it is precisely in the West—and especially in the U.S.—that oil’s new shower of gold should be invested. There is no other place for it to go, and such large investments would also help both the West and the OPEC nations. What has to be settled now so that this can happen is the who, how and how much of an infinitely complicated investment situation.

To be sure, in accepting surplus oil revenues of the size the OPEC nations possess, the U.S. would be taking on a financial task unparalleled in world history. Foreign investment is not new, by any means. Many nations have a stake in the U.S. economy. Even the Vatican has put perhaps 15% of its estimated investment portfolio of $2 billion in U.S. blue chips. Until now, longer-term investments have gradually and calmly built to their current grand total of $70.5 billion, with Western Europe and Canada as leaders.

The possible OPEC member investments, by contrast, are staggering. This year alone, surplus revenues of OPEC members are running at $60 billion. Of this, almost a fifth has suddenly cascaded into the U.S., going mostly into Treasury bills or similar short-term holdings. By next year, the total is likely to exceed $70 billion. Writing in Foreign Affairs, Exxon Economist Gerald A. Pollack predicts that by 1980 OPEC’S total annual investable surplus could reach almost $500 billion. This is more than ten times as much profit as all U.S. manufacturers earned last year or, broadly expressed another way, enough to dig 5,000 Suez Canals at the original 1869 construction cost.

There should be no doubt that the Shah, or any other OPEC member, ought to be allowed to invest in U.S. industry. To deny that right would be to negate a longtime U.S. principle governing investments abroad. Says Columbia University Professor of Law and International Organization Richard Gardner: “The U.S. for years has been preaching the doctrine that there should be broad freedom for international investment. Now that the shoe is on the other foot, it seems hypocritical to say that foreigners cannot invest here.” Gardner’s sentiment is shared by a large number of thoughtful U.S. business executives. “It’s a free market, an auction market,” said new General Motors Chairman Thomas A. Murphy last week.

The question therefore really comes down to the extent of the commitment that such outside investors ought to be allowed to make. Strangely enough, there is now no basic guideline for foreign investing, probably because Washington has never before had to consider it in terms of such sudden massive inflows of money. Instead, there are scattered regulations covering the foreign investment allowed in specific areas, including transportation, communications and, lately, nuclear power. As Federal Reserve Chairman Arthur Burns recently observed about the situation: “Investments by OPEC countries — for that matter, foreign investments of any sort — in some of our strategic industries or enterprises would concern me, and I think this is a problem to which my own shop is giving some attention now, and I think all of us in Government must give much more attention to it in the coming weeks.”

The problem is to write cohesive laws that will clearly define Burns’ “strategic industries or enterprises.” Certainly there should be no investment large enough to enable a foreigner to dic tate policy in U.S. defense industries or in transportation, tele vision networks and other communications industries. The problem for Congress is to meld somehow the interests of OPEC investors and the American desire to maintain unquestioned di rection of sensitive industries.

There is a needful move afoot, meanwhile, to revise legis lation covering foreign investments so that such investors would be made to identify themselves more clearly than they have up to now. This would certainly be helpful in establishing whether or not OPEC investors were acting as individuals, or as representatives of governments, who are less desirable because of the political implications behind their holdings. This legislation is especially necessary in order to insulate U.S. foreign policy — particularly in the Middle East — from petrodollar pressure.

There could conceivably arise, for instance, an “Arab lobby” of U.S. businesses controlled by oil money more powerful than the Jewish lobby that Chairman of the Joint Chiefs of Staff General George S. Brown recently thought he discerned, to President Ford’s embarrassment.

Once the technicalities are worked out, in creasing OPEC equity investments in the U.S.

are bound to be beneficial. In the near term, they would ease a financial situation that threatens to be more devastating than the energy crisis. Rapidly increasing OPEC revenues, which only now reflect last year’s price in creases, have mainly been shoveled into short-term investments, to the point where Western financial institutions are in a bind.

They are forced to try to meet demands for long-term loans at a time when a distressingly large amount of their deposits are very short term, and the outcome cannot be good if that continues. Shifting OPEC money into longer-term accounts would pro vide what First National City Bank Chairman Walter Wriston calls “the quietude of markets.” Beyond that, getting equity in vestments from oil producers can be more profitable for company managers than borrowing at inflated interest rates.

Even if oil nations moved beyond their present stated desire for partnerships — since they lack managerial skills — and at tempted to exercise control, that would not necessarily be dangerous. As Citibank’s Wriston points out: “The purchase of equity control of a company does not remove market forces and does not remove the law. Lever Brothers is wholly owned by foreigners, and it has to get in and shlep along in the U.S.

soap market with everyone else.” More significantly, the greater the OPEC share in the U.S. economy and the bigger its interest in U.S. businesses, the more the oil nations would be come hostages to that economy and the less anxious they would be to impose another embargo that would damage their own investments. Beyond that, to reinject a note of humor, if any company controlled by petroleum potentates got out of hand, the U.S. could always nationalize.

-Spencer I. Davidson